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Federal Arbitration Act
Citation Federal Arbitration Act, 9 U.S.C. §§ 1-14 (full-text). Overview The Federal Arbitration Act (FAA) explicitly permits the use of arbitration and specifically authorizes individuals in commercial transactions to contract for arbitration. Congress enacted the FAA in 1925 to offset the "hostility of American courts to the enforcement of arbitration agreements."Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 111 (2001). The FAA states that an agreement to submit commercial disputes to arbitration shall be "valid, irrevocable, and enforceable."9 U.S.C. §2. "The court's role under the Act is . . . limited to determining (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue."Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000). "Any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration."Moses H. Cone Mem'l Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24-25 (1983). But "arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit."AT&T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 648 (1986) (quoting United Steelworkers of America v. Warrior & Gulf Nav. Co., 363 U.S. 574, 582 (1960)). The FAA reflects "both a 'liberal federal policy favoring arbitration' . . . and the 'fundamental principle that arbitration is a matter of contract.'"AT&T Mobility LLC v. Concepcion, __ U.S. __, 131 S. Ct. 1740, 1745 (2011) (citations omitted). Applicability of the Act The Act applies to all written contracts involving interstate or foreign commerce and provides in relevant part that arbitration agreements contained within such contracts "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract."9 U.S.C. §2. "The FAA creates a body of federal substantive law of arbitrability, enforceable in both state and federal courts and pre-empting any state laws or policies to the contrary."Ticknor v. Choice Hotels Int'l, Inc., 265 F.3d 931, 936 (9th Cir. 2001) (citations and internal quotation omitted). As a result, state laws hostile to arbitration agreements have been held invalid on the ground that such laws frustrate congressional intent to place arbitration agreements on the same footing as other contracts.Bradley v. Harris Research, Inc., 275 F.3d 884, 889 (9th Cir. 2001). State law is not entirely displaced from FAA analysis, however. It is undisputed that "generally applicable contract defenses, such as fraud, duress, or unconscionability, may be applied to invalidate arbitration agreements without contravening § 2."Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 686 (1996). Federal courts primarily invoke the FAA to give effect to contracting parties’ expectations for resolving disputes. Accordingly, the FAA revolves around contract interpretation.See Harrison v. Nissan Motor Corp., 111 F.3d 343, 350 (3d Cir. 1997) ("Arbitration is creature of contract, a device of the parties rather than the judicial process. If the parties have agreed to submit a dispute for a decision by a third party, they have agreed to arbitration.") (quoting AMF Inc. v. Brunswick Corp., 621 F. Supp. 456, 460 (E.D.N.Y. 1985) (Weinstein, J.)). Because the FAA does not define the term "arbitration," "courts and commentators have struggled to do so."Harrison, 111 F.3d at 350. Broadly, courts have concluded that "the essence of arbitration . . . is that, when the parties agree to submit their disputes to it, they have agreed to arbitrate these disputes through to completion, i.e. to an award made by a third-party arbitrator. Arbitration does not occur until the process is completed and the arbitrator makes a decision."Id. at 350. This definition does little to assist in determining which types of dispute resolution fall under the FAA and which do not. The Court of Appeals for the Fourth Circuit has distinguished "mandatory arbitration, as a prerequisite to litigation" from "binding arbitration, where the parties must accept an award or decision of the arbitrator."United States v. Bankers Ins. Co., 245 F.3d 315, 322 (4th Cir. 2001). But the real debate has occurred "in the context of whether the FAA applies to nonbinding arbitration."Harrison, 111 F.3d at 350. Although the precise identity of nonbinding arbitration is itself perhaps no less murky than the definition of "arbitration" under the FAA, courts have previously looked to Judge Weinstein’s discourse in AMF, Inc. v. Brunswick Corp.,''620 F. Supp. 456 (E.D.N.Y. 1985). for guidance. Judge Weinstein did not contend that the FAA applies to all forms on nonbinding arbitration, but he looked to §2 of the FAA, which states that the FAA applies to "contracts . . . to settle disputes by arbitration."9 U.S.C. §2. Accordingly, Judge Weinstein centered the inquiry for a classification of nonbinding arbitration on "whether the arbitration at issue . . . might realistically settle the dispute."''Harrison, 111 F.3d at 349. In his eyes, then, a dispute-resolution mechanism would fall under the FAA if "viewed in light of the reasonable commercial expectations the dispute will be settled by this arbitration."Id. (quoting AMF, 620 F. Supp. at 461). By way of an example, a lawsuit that halts in a "stay . . . so that arbitration can be had" before litigation may proceed means that a dispute-resolution proceeding constitutes "arbitration."9 U.S.C. §3; see also Parisi v. Netlearning, Inc., 139 F. Supp. 2d 745, 751 (E.D. Va. 2001) ("There is no reason to ‘stay’ litigation under §3 a proceeding contemplates parallel litigation."). If a dispute-resolution mechanism indeed constitutes arbitration under the FAA, then a district court may vacate it only under exceedingly narrow circumstances.9 U.S.C. §10. It may vacate it where there is "evident partiality or corruption in the arbitrator[ ]," or because "the arbitrators were guilty of misconduct . . . in refusing to hear evidence pertinent and material to the controversy."9 U.S.C. §§10(a)(2)-10(a)(3). A district court may also vacate an arbitrator’s decision where the arbitrator’s decision "evidences a manifest disregard for the law rather than an erroneous interpretation of the law."Local 863 Int’l Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America v. Jersey Coast Egg Producers, Inc., 773 F.2d 530, 534 (3d Cir. 1985). The net result of a court’s application of this standard is generally to affirm easily the arbitration award under this extremely deferential standard — a result that is squarely in line with the purpose behind the FAA where courts are tasked with reviewing an arbitration decision. If, however, a dispute-resolution mechanism does not constitute arbitration under the FAA, then a district court has no jurisdiction to review the result absent an independent jurisdictional hook.See Roadway Package Sys. v. Kaiser, 257 F.3d 287, 291 n.1 (3d Cir. 2001) (citing Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp. , 460 U.S. 1, 25 n.32 (1983) (explaining that the FAA does not independently provide federal jurisdiction); Harrison, 111 F.3d at 352 (dismissing a request for lack of appellate jurisdiction, where the dispute resolution proceeding did not constitute arbitration under the FAA). References See also * Arbitration Category:Legislation Category:Legislation-U.S.-Federal Category:Arbitration